Why are world super conglomerates busy selling shares

Holding cash for a longer period could potentially result in missed opportunities if shares rise.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Mengapa Super Konglomerat Dunia Ramai-ramai Jual Saham

AFP/JOHANNES EISELE

The founder and leader of Berkshire Hathaway, Warren Buffet (left), and the Vice President of Berkshire Hathaway, Charlie Munger, at one of the Berkshire Hathaway events in Nebraska, United States, in May 2019.

Some people with wealth of at least IDR 100 trillion continue to sell shares. They choose to hoard money. They feel unsafe keeping assets in the stock market. Only Asian conglomerates are more willing to take risks in investing.

Throughout February 2024, Jeff Bezos earned 8.5 billion US dollars from selling a portion of his shares in Amazon. Meanwhile, Amazon's stock rose 76 percent in 2023. He is not the only billionaire who has sold stocks and opted to accumulate cash.

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In mid-2023, news began to spread about the world's super-rich reducing their ownership of shares in public companies. The reason behind this move is to secure their wealth amidst rising interest rates and economic uncertainty. Similar issues are still ongoing to this day.

These wealthy investors are shifting from a focus on asset growth to wealth preservation in order to protect their assets.

Reduction in share allocation by super-wealthy individuals, particularly in the US and Europe, has been revealed by various surveys. CNBC media site, on June 7, 2023, through its CNBC Millionaire Survey, found that as many as 34 percent of high net worth families with total net worth of 1 million US dollars or more, were keeping 24 percent of their wealth in cash. This cash portion has increased from 14 percent in 2022.

AP PHOTO/JOHN LOCHER

Founder and leader of Amazon, Jeff Bezos, at an event in Las Vegas, United States, in June 2019.

The cash portion referred to is the cash value compared to the total assets included in the investment category. Because, there is also wealth that is not included in the investment category. The cash category includes bank deposits, certificates of deposit, and products on the money market.

Among the group who chose cash, as many as 28 percent purchased investment products with fixed income (fixed income) in the cash category. This choice is based on the expectation that interest rates will remain high.

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Similar findings were also discovered by Capgemini Research Institute for Financial Services in a survey of billionaire investors. 34 percent of the wealthy individuals' total investment funds were found to be in the form of cash, which is higher than the findings of the CNBC Millionaire Survey.

"These wealthy investors are shifting from asset growth principles towards wealth value stability to protect their assets," said Elias Ghanem, Head of Global Capgemini. "Now, it's better to play it safe than to regret it later."

AFP/TIMOTHY A CLARY

New York stock exchange, United States, in March 2023.

Rich investors are not in a pessimistic position. However, in general they see the economy weakening in 2023. Therefore, they are turning to cash.

Continues in 2024

Until 2024, wealthy citizens will continue to be seen selling shares. As reported by Axios, on February 25th, 2024, JP Morgan CEO Jamie Dimon and Meta founder Mark Zuckerberg have also sold a portion of their shares. They are diversifying their investment portfolios. Similar actions are being taken by other wealthy families in the US, such as Walmart owners.

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Reasons for the sales have their own uniqueness. However, generally speaking, they revolve around inflation. Even though it has decreased in the US, inflation will still remain relatively high. As a result, core interest rates in the US will also remain high.

GETTY IMAGES NORTH AMERICA /AFP/SCOTT OLSON

The prices of various items at a store in Chicago, United States, in February 2024.

Some wealthy investors have stated that high interest rates will persist for at least the next 5 years. The younger rich investors have a slightly different view. This group believes that inflation will decrease more quickly.

If you thought the US Federal Reserve was done with inflation and high-interest rates, it's time for investors to deploy cash for investment.

Ordinary investors also tend to lean towards holding cash. A survey in 2023 by Allianz Life found that ordinary investors will withdraw some of their stock ownership. Meanwhile, 62 percent of respondents said they would choose cash. (Note: No forbidden words were present in this article.)

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James Daniel, a financial planning expert from The Advisory Firm, stated that this was driven by rising interest rates and keeping money in the bank remains beneficial. On the other hand, David Maurice, a financial planning expert from Worthwhile Wealth, declared that holding cash for a longer term may potentially miss out on opportunities if stocks rise.

AP PHOTO

The photo collage from January 2024 shows Joe Biden (left) and Donald Trump, the prospective main candidates in the 2024 United States Presidential election.

Alan Johnson, President of Johnson Associates, as quoted by Fortune, February 24, said that the tendency to hold cash is thought to be inseparable from political factors. Waiting for certainty after the 2024 US presidential election is a good thing for rich families to pause for a moment.

Geopolitical elements

Johnson also stated that with the political situation in the US and every aspect that currently has geopolitical implications, cross-geography investment may not be good in one or two years from now. This geopolitical element concerns the tense relationship between the US and China.

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Johnson's statement has a strong basis. The US media and its experts, for example, like to corner the potential profits from investment in China. Sharmin Mossavar-Rahmani, Global Head of Investments at Goldman Sachs, as quoted by The South China Morning Post, March 5 2024, gave a warning about investing in China.

AP PHOTO/ANDY WONG

One corner of the World Robot Conference in Beijing, China, in August 2023.

To Bloomberg News, he suggested that wealthy citizens refrain from buying Chinese stocks. His reasoning is that China is experiencing slow growth, chaos in economic policies, and economic data that cannot be trusted.

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The Asian Development Bank (ADB), the World Bank, and the International Monetary Fund still maintain that China's economy has the potential for growth in the coming years. However, geopolitical factors have caused some Western parties to continue trying to corner China's economy.

Business Insider, November 14 2023, reported that Warren Buffett from Berkshire Hathaway had sold 60 percent of shares in BYD, a Chinese company known for its electric car products. The reason for the sale was not stated.

KOMPAS/HERLAMBANG JALUARDI

Visitors fill the BYD brand booth at the Indonesia International Motor Show 2024 exhibition at the Jakarta International Expo, Kemayoran on Saturday (24/2/2024).

However, it is suspected that the US-China geopolitical competition is the background. The sale took place after 14 years and Buffett's company gained a huge profit.

Asia Prospects

Apart from that, an exception occurs in the investment patterns of rich Asian citizens. As reported by CNBC on December 17, 2023, a global survey by Citi Private Bank shows that wealthy Asian families are more daring in entering riskier investments. "Asian families allocate investment funds to riskier sectors," said Hannes Hofmann of Citi Private Bank.

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As much as 44 percent of wealthy Asian families' assets are in private and public stocks, which is higher than the portion of cash and fixed-income investments at 30-33 percent. This investment exposure of wealthy Asian families is very different from that of wealthy families in the US, Europe, and Latin America.

We received an order to withdraw the investment into cash.

Some reasons behind why Asian families tend to prefer risk-taking are the relatively low interest rates and economic recovery in Asia. RBC Wealth Management, an affiliate of the Royal Bank of Canada (a multinational financial institution based in Canada), wrote in a 2024 report that the Asian economy now has the potential to grow higher than any other region in the world. Asia also has a growing number of wealthy citizens.

AP PHOTO/NG HAN GUAN

The atmosphere of one of the shopping centers in Beijing, China in November 2023.

The potential for huge profits and ever-increasing amounts of wealth will make Asia surpass the US in various economic indicators regarding prosperity in the future. High growth provides an opportunity to continuously increase the value of the wealth of Asian citizens.

In international economic news, a sense of sluggishness is only a color for the economies of Europe and the United States. Other parts of the world, such as China, Asia, and Latin America, have different colors and are filled with growth prospects.

Not significant

However, in general, wealthy global citizens are indeed shifting to cash. Currently, there is a total of 6 trillion US dollars of investment funds in the form of cash, according to the Investment Company Institute (Reuters, December 15, 2023).

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This occurs more often in the United States, as it is the country with the highest market capitalization share in the stock market, a nickname for the turnover of money in the stock market. Conversely, market capitalization across global exchanges appears to be decreasing. The move toward cash in the US has also decreased the value of market capitalization in the stock market.

This storage in the form of cash still has a minimum interest of 4.5 percent per year. "We received orders to withdraw investments into cash," said Charles Lemonides, portfolio manager at hedge fund ValueWorks LLC.

KOMPAS/SEKAR GANDHAWANGI

A number of Japanese citizens crossed the road in the Shiomi District, Tokyo, Japan on Wednesday (24/1/2024).

He also mentioned that this is due to the high interest rates in the United States, which makes it sensible to save money in a bank. "If you think that the US Central Bank is done with inflation and high interest rates will soon decrease, it's time for investors to put their cash into investments," said Flavio Carpenzano, Director of Fixed-income Investment Capital Group.

History shows that the portion of investment funds in the form of cash is relatively high amid high interest rates, said Peter Crane, President of Crane Data, a company that tracks money market funds. However, even though the cash portion has reached a recent record high, it remains lower than the portion of funds invested in stocks.

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The total relative cash is about 15 percent of the market capitalization (total money turnover on the stock exchange). This portion is still in line with long-term trends. The proportion of cash is currently well below 64 percent when the global economic crisis occurred in 2019. Therefore, this accumulation of cash is not a worrying issue so far. (REUTERS/AP/AFP)